Open letter to the Finance minister from the Cement industry - Views on News from Equitymaster

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  • Feb 22, 2003 - Open letter to the Finance minister from the Cement industry

Open letter to the Finance minister from the Cement industry

Feb 22, 2003

Cement is one of the highly taxed commodities in India, both at central and state levels. It constitutes approximately 30% of the selling price of the cement, excluding local transport and dealer’s margins. Specifically, the cement industry’s expectations from the Budget 2003-04 are:

  1. Construction and infrastructure have exhibited the highest multiplier effect both in the forms of revenue and employment. Therefore, the thrust of the Budget should be on housing construction and infrastructure.

  2. Construction contributes as much as 7% of GDP and enjoys multiplier of about 8, considering all effects direct, indirect and induced. According to official estimates, at present there are 31 m construction workers in the country. A 10% increase in construction investment would lead to 2.5% increase in total employment of the country.

  3. By adopting Canadian technology, a road with High Volume Fly Ash (HVFA) with 50% cement and 50% fly ash has been constructed. The initial cost of this road works out to hardly 5% higher than the cost of bitumen road but the advantage lies in the fact that there is no recurring cost of maintenance. The road infrastructure can get a major boost by going in for such HVFA concrete roads in case of not only the national and state highways but also the PMGSY. This would bring substantial revenue to the Govt. besides utilisation of fly ash and providing first class road infrastructure.

  4. The cement industry attracts specific rate of duty of Rs 350 per tonne. Government has been considering introduction of MRP / Transaction value system for charging Excise Duty, which is likely to result in revenue loss to the government of India to the extent of Rs 9-10 bn per annum. Cement industry’s contribution to ex-chequer at present is over Rs 3.5 bn per annum without a single case of litigation and pilferage. Further, incidence of CENVAT credit is negligible as major inputs like coal, limestone and power are non-excisable. Keeping in view the intricacies in valuation issue that can would emerge under an ad-valorem system of excise and transparency shown over the years in the present system and non-existence of litigation, the Kelkar committee report on indirect taxes has also recommended continuation of excise duty on specific rate for cement industry. It is, therefore, requested that excise duty on cement be maintained at specific rate of duty.

  5. Customs duty on non-coking coal was increased from 15% to 25% in May 2000, which has adversely affected the viability of the cement industry. Inspite of highly competitive international market, the cement industry was able to export 5.1 m tonnes in 2001-02. While the cement industry is allowed duty-free import of coal for cement exports, there is an overwhelming need to review the current level of 25%. Basic customs duty on coal, which was increased from 15% when the international price of coal was around US$ 19-20. Today, the price is between US$ 29-30. Cement plants located far away from the collieries cannot buy coal from domestic source since it will put tremendous pressure on the transportation system if are forced to buy coal from local source. It is therefore, imperative that the customs duty on non-coking coal be reduced to 5% at par with the duty on coking coal.

  6. Cement industry fully supports and whole-heartedly welcomes government’s efforts to introduce Value Added Tax (VAT). However, introduction of VAT regime may be simultaneous in all States, to avoid disparity. This view is now being voiced more and more. Another area, which needs government’s urgent attention, is the commitment given by the various state governments to attract investments in the form of sales tax exemptions, which ideally ought to continue, as these are committed measures on the basis of which projects are being implemented. If alternative becomes necessary, it should be replaced by the scheme, which is working satisfactorily in West Bengal, and is compatible with the VAT regime. The cement industry would like to emphasise that the states must honour the commitment given to the Industry at the time of investment.

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